Bank One ( ONE - Get Report) and Wells Fargo ( WFC - Get Report), two of the nation's largest banks, each met or beat estimated earnings in the second quarter, in large part on improving credit quality and strong loan demand.

Bank One also expensed stock options for the first time on its second-quarter financial statement. The company joins Coca-Cola and Washington Post in taking the voluntary step, which some argue presents a more accurate picture of a company's profitability.

Bank One said net income for the second quarter ended June 30 was $843 million, or 71 cents a share, up 27% from $664 million, or 60 cents a share, a year ago. Analysts polled by First Call were expecting second-quarter earnings of 68 cents a share.

The company said the options expense reduced second-quarter earnings by $8 million, or 1 cent a share.

"Most banks will want to make a move towards that," said Sharada Vibhakar, of brokerage Parker/Hunter, noting that Bank One still beat earnings estimates despite the penny decrease.

Good Credit

As for Bank One's earnings, Vibhakar said the company found strength in its credit card unit. "The credit cards are doing well and the losses are coming down," said Vibhakar, who has an accumulate rating on the stock. Parker/Hunter does not do any underwriting work for Bank One.

Operating profit in the company's credit card unit rose 53% to $296 million as the company opened 1.28 million new accounts -- 28% more than in the year-ago quarter.

The company said its credit quality was improving, although at $215 million its provision for credit losses was up 8% from a year ago, due to higher charge-offs in personal and home equity loans. Still, the provision was down $52 million from the first quarter of 2002 as charge-offs fell sequentially.

"Credit quality is stabilizing across our businesses and, given the current economic conditions, we expect no further significant deterioration in either commercial or consumer nonperformers," the bank said. "More importantly, we have become increasingly comfortable with our ability to better control, manage and underwrite risk in a consistent and disciplined manner across all our businesses."

In late-morning trading, Bank One stock was 1.70% higher at $36.42.

Favorable Spread

Wells Fargo reported that its second-quarter net income was $1.42 billion, or 82 cents a share, a 17% increase over the year-earlier period of $1.22 billion or 70 cents a share. Analysts polled by First Call were expecting 82 cents a share.

Anthony Polini of Advest attributed the improvement to an expansion in consumer lending.

"It helped that they had a strong consumer focus," said Polini, who rates Wells Fargo as a buy. Advest doesn't do any investment banking business with Wells Fargo.

Wells Fargo reported that its consumer loans grew by 21% in the second quarter from a year ago while demand for commercial loans was flat. Its overall net interest income rose 21% to $3.67 billion compared with a year ago.

Before noon Wells Fargo shares were trading down 0.64% at $46.85.